France France – General Insurance International Comparison of Insurance Taxation* May 2009

France
International Comparison of Insurance Taxation*
May 2009
France – General Insurance
Definition
Accounting
Taxation
Definition of property and casualty insurance
company
Non-life business to which insurance
legislation applies.
Not defined by tax legislation.
Commercial Accounts/Tax and Regulatory
Returns
Accounting
Taxation
Basis for the company’s commercial accounts
Rules provided by the Code de commerce
and the Code des assurances.
Taxable income corresponds to accounting
income from French statutory local books
subject to specific adjustments (IFRS not
applicable).
Regulatory return
Separate return as issued by the ‘Autorité
de Contrôle des Assurances et des
Mutuelles’.
N/A.
Tax return
N/A.
Filed annually.
Technical Reserves/Equalisation Reserves
Accounting
Taxation
Unearned premiums reserve (UPR)
Different methods are authorised. Contractby-contract calculation is now generally
used.
Tax deductible.
Unpaid claims reported
Calculated on a claim-by-claim basis – no
discount allowed.
Tax deductible if satisfies claim by claim
methodology.
Claims incurred but not reported (IBNR)
Calculated based on experience on
statistical basis (no regulatory method).
Tax deductible if satisfies standard statistical
rules.
Unexpired risks
Calculated based on the loss ratio (S/P)
when exceeding 1.
Tax deductible.
Premium Deficiency Reserve
Computed based on the net premium
method. Assumptions are not regulated.
No tax treatment yet defined.
General contingency/solvency reserves
Not allowed.
Non-deductible.
Equalisation reserves
Refer to tax rules.
Reserve tax deductible only for a list of
specific risks (e.g. natural catastrophe,
nuclear, credit, civil liability due to pollution,
space, terrorism, air transport, bodily injury
covers). Tax deductible within the limits set
forth by the French tax code. If not used, the
reserve must be reversed to taxable income
after a certain number of years.
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France - General Insurance (continued)
Expenses/Refunds
Accounting
Taxation
Acquisition expenses
Deferred acquisition costs must be posted
as an asset. Calculation method must be
consistent with the one used for unearned
premiums. Must be amortised up to a
maximum of 5 years.
Tax deductible immediately.
Loss adjustment expenses on unsettled claims
(claims handling expenses)
To be included in the unpaid claims
reserve.
Tax-deductible (as part of the claims
reserves).
Global provision for impairment on assets (net of
hidden gains)
Reserve for net global impairment of the
assets. Booked when hidden losses on
assets exceed hidden gains.
Deductible within certain limits (depending
on the type of asset for which an impairment
in value is incurred).
Experience-rated refunds
Credited when earned. Refunds on unpaid
claims reported are deducted from unpaid
claims.
Deducted from unpaid claims.
Investments
Accounting
Taxation
Gains and losses on investments
Taken to P&L when realised.
Gains on the following assets are taxable at
the standard rate (34.43%): portfolio shares,
real estate assets, non listed real estate
shares, etc.
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Exceptions are:
- Gains on investment shares held for more
than 2 years which are taxable up to 5% of
their amount (95% tax exempt).
- Gains on shares held in listed real estate
companies are taxable at the reduced rate of
19.6%.
- Gains on certain private equity funds are
taxable at 15.49%.
Gains on the sale of bonds are taxable at the
standard rate. They must posted in a tax
deductible special reserve (“réserve de
capitalisation”). Losses on the sale of bonds
are credited against this reserve.
Investment reserves
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Reserve booked when the market value of
an asset is lower than book value at closing
date.
In the case of long term depreciation,
reserves are booked.
Tax deductible if set up according to fiscal
rules.
Reserve for depreciation of real estate
assets and RE shares is deductible only up
to the global net depreciation on said assets.
Reserve for depreciation on investment
shares is not deductible.
Reserve on bonds is deductible only in case
of risk of default of payment by the issuer.
Investment income
Included in P&L.
For bonds, redemption premium (difference
between acquisition price and redemption
value) is spread on an actuarial basis over
the duration of the bond.
Interest are taxable on an accrual basis.
Dividends are taxable except for investment
shares (> 5% of capital, in which case
dividends are 95% tax exempt).
Most UCITs are ‘mark-to-market’ at year-end
and unrealised gains/losses are included in
taxable income.
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France - General Insurance (continued)
Reinsurance
Accounting
Taxation
Reinsurance premiums and claims
Disclosed separately in P&L. Technical
reserves are booked gross of reinsurance
ceded.
Follows accounting treatment. Premiums are
deductible and claims against the
reinsurance companies are taxable.
Mutual Companies
Accounting
Taxation
Mutual companies (All profits returned to
members)
Mutual entities subject to the provisions of
the ‘Code des assurance’ (French insurance
code) (all profits returned to members)
Mutuals subject to the ‘Code des
assurances’ are taxed in the same way as
stock companies.
As from FY08, a tax grouping is now
possible.
Entities subject to the provisions of the “Code
de la Mulualité” (“Mutuelles”) and those subject
to the provisions of the “Code de la sécurité
sociale” (“Institutions de Prévoyance”)
Although usually common to those
applicable to the other insurers, rules may
however differ.
Most of these entities to date are tax exempt.
Since FY06, they are subject to IPT rules
under standard rules. They will be subject to
CIT in a near future. The tax friendly regime
proposed by the French Government is
being reviewed by the EU Commission in
order to determine whether this is State Aid
or not.
France – General Insurance - Other Tax Features
Further corporate tax features
Taxation
Loss carry-overs
Tax losses are carried forward indefinitely.
Tax losses may be carried back three years.
Foreign branch income
Not taxable in France (territorial rule).
Domestic branch income
Branch tax amounts to 25% of after-tax profits (reduced by double tax treaties).
0% branch tax for EU branches.
Corporate tax rate
There is one standard rate and three reduced rates:
• Standard rate: 33.33% + (33.33% x 3.3%) = 34.43%
• Reduced rate: 19% + (19% x 3.3%) = 19.6%.
• Reduced rate : 15% + (15% x 3.3%) = 15.49%
• Reduced rate: 0%
Other tax features
Taxation
Premium taxes
Standard rate: 9%
Other rates range from 0% to 30%
Capital taxes and taxes on securities
N/A.
Tax on excess claims reserves
Calculated as a late interest on the CIT avoided.
Captive insurance companies
Standard corporate tax rules.
France – Life Insurance
Definition
Accounting
Taxation
Definition of Life Assurance companies
A company that carries out insurance
business in connection with the duration of
life of the policyholder. The company
cannot do general business pursuant to
specific regulations. Not defined by tax
legislation.
Not defined by tax legislation; subject to the
rules applicable to policyholders.
Commercial Accounts/Tax and Regulatory
Returns
Accounting
Taxation
Basis for the company’s commercial accounts
Rules provided by the Code de commerce
and the Code des assurances.
Taxable income corresponds to accounting
income from French local statutory books,
subject to specific adjustments (no IFRS).
Regulatory return
Separate return as required by the ‘Autorité
de Contrôle des Assurances et des
Mutuelles’.
N/A.
Tax return
N/A.
Filed annually
General approach to calculation of income
Accounting
Taxation
Allocation of income between shareholders and
policyholders
Surplus granted to policyholders are
accounted for in a specific reserve to be
reversed to the technical reserve, as
provided by the contract, within a maximum
period of eight years.
Profits allocated to policyholders are tax
deductible.
Calculation of investment return
Accounting
Taxation
Calculation of investment income and capital
gains
Included in the P&L.
For bonds, redemption premium is taxed on
an actuarial basis over the duration of the
bond.
Interest taxable on an accrual basis.
No mark-to-market for UCITs at year-end
(different from non-life).
Dividends are 95% exempt if affiliation
privilege applies (stake > 5%).
For gains, same rules as for non life
business.
Investment reserve (PDD)
Refer to comments above regarding the
non-life activity
Refer to comments above regarding the nonlife activity
France – Life Insurance (continued)
Calculation of underwriting profits or total
income
Accounting
Taxation
Actuarial reserves
Zillmer method is compulsory – DAC have
to be disclosed separately.
Tax deductible.
Acquisition expenses
DAC have to be disclosed separately.
Tax deductible.
Gains and losses on investments
Realised gains and losses are taken to
P&L. Unrealised gains are not booked. For
unrealised losses see below.
Same rules as for non life business.
Due to prudential rules, these reserves
have to be recorded (based on the
application of contractual terms) until
completion of existing obligations may
generate negative margins due to:
The reserve for negative margins due to cost
of administering the contracts is deductible
within the limits set forth in the tax rules.
Reserves for future adverse deviation
(provision global de gestion, provision
pour aléas financiers)
• cost of administering the contracts (PGG);
Special regime for unit-linked contracts
(asset and liability marked to market).
The deductibility of the reserve for negative
margins due to inadequate performance of
investment is not approved by the FTA.
• inadequate performance of investments
relative to insurance obligations (PAF).
Dividend income
-
See above (non life)
Policyholder bonuses
Deducted from net income.
Tax deductible.
Global provision for impairment on assets (net of
hidden gains)
Reserve for global depreciation of the
assets. Booked when the book value of the
assets is lower than the market value at
closing date.
Deductible within the limits set forth by fiscal
rules (see above).
Retirement contracts (collective)
Specific segregation rules may be
applicable from an accounting perspective
[e.g. contracts subject to the IRP regime, L
441 type contract, PERE contracts, ‘eurodiversifiés’ contracts]. Furthermore, L 441type contracts, PERE contracts, and ‘eurodiversifiés’ contracts may be subject to
specific regulatory and accounting rules.
To match with accounting rules, these
contracts may be subject to specific
segregation rules from a tax perspective.
These rules impact the computation of gains
and losses on investment (specific FIFO
calculation). Specific rules relating to the
transfer of assets into and out of these
segregated funds are also applicable.
Equalisation/catastrophe reserves
Refer to fiscal comments.
Tax deductible only for a list of specific risks.
Tax deductible within the limits set forth by
the French tax code. If not used, the reserve
must be reversed to P&L and taxed after a
certain period of time.
Other special deductions
N/A.
N/A.
Reinsurance
Accounting
Taxation
Reinsurance premiums and claims
Shown as a deductions in claims and
premiums.
Follows accounting treatment.
Reinsurance premiums ceded to companies
located in non-tax treaty countries may be
subject to a 33.33% withholding tax levied at
source.
Interest on deposits from foreign reinsurers is
subject to a 16% withholding tax (reduced
depending on the applicable tax treaty).
Mutual companies/Stock companies
Accounting
Taxation
Mutual Companies
No special rules.
Mutuelles relevant du Code des assurances:
taxed in the same way as stock companies.
As from FY08, a tax grouping is possible.
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France – Life Insurance - Other Tax Features
Further corporate tax features
Taxation
Loss carry-overs
Tax losses can be carried forward indefinitely.
Tax losses may be carried back three years.
Foreign branch income
Not taxable in France (territorial taxation principle).
Domestic branch income
25% branch tax calculated on after tax profits (reduced by double-tax treaties).
0% branch tax for EU branches.
Corporate tax rate
There is one standard rate of tax (34.43%) and three reduced rates (0%, 15.49%, 19.6%).
See above.
Policyholder taxation
Taxation
Deductibility of premiums
Very limited income tax relief on qualifying premiums
Interest build-up
No income tax during the contract. However, interest build-up is subject to social security
taxes (CSG, CRDS and prélèvement social i.e. 12.1%) during the contract for non unlit
linked contracts.
Proceeds during lifetime
Gains (proceeds received in excess of premiums paid) are taxable at various fixed rates
depending on the duration of the contract (35% below 4 years, 15% between 4 and 8
years, and 7.5% above 8 years). In addition, the social security taxes above mentioned
(12.1%) are due upon termination of the contract for unit linked contracts. Alternatively, a
taxpayer may decide to include proceeds in his income tax return where applicable
marginal rate is indeed lower than the fixed rates above mentioned.
Proceeds on death
For contracts signed since 1991:
Proceeds on death related to premiums paid after the seventieth birthday of the insured
are subject to inheritance tax on that part equal to premium paid exceeding 30,500€.
Proceeds on death related to premiums paid as of 13 October 1998 and before the
seventieth birthday of the insured are subject to a specific tax at the rate of 20% on the
amount exceeding 152,000€ per beneficiary.
Proceeds are exempt from all taxes when related premiums paid before 13 October 1998
and before the seventieth birthday of the insured. Other rules are applicable to contracts
signed before 20 November 1991.
Other tax features
Taxation
Premium taxes
No premium tax on life policies.
Capital taxes and taxes on securities
N/A.
Captive insurance companies
Standard corporate tax rules.
France
International Comparison of Insurance Taxation*
May 2009
Contact information
Jacques Taquet
Partner
Landwell & Associés
61, rue de Villiers
92200 Neuilly-sur-Seine
Tel: (33) 1 56 57 83 60
E-mail: [email protected]
David Chrétien
Manager
Landwell & Associés
61, rue de Villiers
92200 Neuilly-sur-Seine
Tel: (33) 1 56 57 45 65
E-mail: [email protected]
*connectedthinking
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